For Renaud Laplanche, it all began with a credit card statement that seemed all wrong. Now, after helping to bring banking into the digital era, it's time for a major IPO for his SF-based firm.
SAN FRANCISCO — Wearing a simple shirt and jeans, Renaud Laplanche has already adopted the Silicon Valley's dress code. Having moved there 10 years ago, the 44-year-old Frenchman runs Lending Club, an American pioneer in online peer-to-peer money lending that is preparing for an imminent initial public offering (IPO).
"I feel a lot closer to Google's philosophy than to the banks'," the entrepreneur says. And it's highly symbolic that the headquarters of the company he founded in 2006 are located in San Francisco's South of Market, the neighborhood where other Silicon Valley successes such as Twitter, Zynga, Airbnb and Uber are located. It's a far cry from the nearby Financial District, where, for example, Wells Fargo — America's biggest bank by market capitalization — is based.
Eight years after its launch, Lending Club is expected to win ultimate recognition in the next few weeks with its IPO on the New York Stock Exchange. On Dec. 1, the company disclosed an amended prospectus in which it indicated it was hoping to raise up to $796 million on the basis of a maximum value of $4.2 billion.
Lending Club's SF HQ — Photo: lulubelle05 via Instagram
This would make it the second-biggest U.S. IPO for an online company this year, behind China's Alibaba. And should the price of $10 to $12 per share be re-evaluated, Lending Club could even make it in the all-time top 10. But Laplanche tries to put things into perspective. "This is just one step in the company's growth," he says. "Operating as a listed company sends a strong signal. It says that we're here to stay and to change the banking system."
How it began
A former corporate lawyer in Paris and then in New York for Cleary Gottlieb Steen & Hamilton, Laplanche graduated from the Paris business school HEC and joined Oracle in 2005 when the computer technology corporation bought its first company, TripleHop Technologies. Founded in 1999 just before the dot-com bubble burst, TripleHop created an internal search engine designed for law firms before it was adapted to other sectors, including American media organizations. Laplanche left Oracle just before founding Lending Club.
"Initially, I was supposed to take a sabbatical for six months to a year to travel," he says. "But after two weeks, I got the idea for Lending Club."
It all began with a credit card statement. "I noticed that the interest rate was 18%. I then opened a statement from a savings account where I was making a little under 1%. When you're an entrepreneur and you see such a difference, it tells you that there must be some market inefficiency somewhere."
To narrow that gap, Laplanche set his sights on becoming the middleman between private individuals with capital and those who needed money. "He was determined to impose a new model at a time when almost nobody was talking about a sharing economy," recalls Loïc Le Meur, who invested in Lending Club. "But he had this ability not to listen to anybody and to go into an environment that was not his." The entrepreneur first started his activity on Facebook but was forced to halt a year later, pending Securities and Exchange Commission approval.
Lending Club founder Renaud Laplanche — Photo: Facebook page
In early 2010, Lending Club topped $100 million loaned. Since then, its growth has been unrelenting. It had reached $1 billion by the end of 2012. By Sept. 30 of this year, it had loaned $6.2 billion, with more than half of the sum loaned since the beginning of 2014.
"The volume of loans doubles every year," Laplanche says, stressing that he voluntarily sets a limit to better manage the company's development. "We're four to five times bigger than our rivals and are continuing to grow faster," he adds. "There's a real advantage in being the market leader, a bit like eBay had been at the beginning for online auctions."
Diversification is key
The website now allows loans of up to $35,000 that can be repaid in two, three or five years. Interest rates vary depending on risks, starting at 6.8%, and going as high as 30%. The average loan is $14,000 with an average interest rate of 14%. Lending Club is particularly attractive for people who are already indebted — those who, for example, have to repay purchases made with credit cards with rates that can top 20%. In fact, such cases represent 80% of the company's loans.
"We use a lot on online data and consult with credit rating agencies to identify potential clients, people with good credit qualities, a stable job and who spend too much money repaying their debts," Laplanche explains. The only thing left to do after that is to canvass them and convince them that they can save a lot of money. That's Lending Club's key to success.
The company also managed to convince almost 80,000 investors, who together shared $595 million in company interest. But the service isn't open to anyone who wants to invest in it. Certain conditions regarding resources and property have to be met. Investors can choose between seven risk categories, with interest rates that vary accordingly. To limit potential losses, Lending Club "securitizes" borrowing. This means that there isn't just one person that lends $10,000 to another, but instead hundreds of people who each lend a few dozen dollars.
"Diversification is the main protection for our investors," Laplanche explains, as the company boasts 99.9% positive returns on investments when the money comes from a least 100 lenders. With non-payments — which represent a little under 4% of borrowers — and commissions taken into account, the average annual return is 7.2%. "Most of those in finance who advise against investing in Lending Club don't earn you 7% a year," says Loïc Le Meur, who invested "several million dollars" in the company.
Lending Club was in the limelight in May 2013 when Google acquired a stake in the company, investing $125 million. "We've learned a lot from Google," Laplanche says. "They gave us loads of advice in security and marketing."
"Lending Club Google doodle" in the company's HQ — Photo: lulubelle05 via Instagram
Six months later, the search giant was followed by Russian billionaire Yuri Milner, who has made a name for himself over the past few years by investing in Facebook, Twitter, Zynga, Airbnb and Groupon. The company also attracted big names among venture capital firms, among them Kleiner Perkins and Union Square Ventures. Between 2007 and now, Lending Club has raised more than $400 million for its development.
To further improve its reputation, Lending Club has also recruited some big names. On its board of directors: John Mack, former CEO of Morgan Stanley; Larry Summer, Secretary of the Treasury under President Bill Clinton; and Mary Meeker, a star Internet sector analyst. "Lending Club has the potential to profoundly transform traditional banking over the next decade," a enthusiastic Larry Summers said in 2012.
"The goal is not to replace banks," Laplanche says. "We believe we can work hand in hand with them to help the system evolve." The company works with several banking institutions that invest the savings of their clients on the platform. And they also offer Lending Club loans to their clients. "We started with small local banks, but we recently signed partnerships with bigger firms," the entrepreneur explains.
Lending Club has also started diversifying its activity. In March, the company opened its platform to small businesses, allowing them to borrow up to $100,000. The next month, it acquired Springstone Financial, a company specializing in loans for education or health care. But it's not planning to expand outside the United State. Not yet.